Business   

EET: Will it be retrospective?

The Budget speech refers to EET (exempt, exempt and tax) and has given rise to a lot of confusion discouraging people from investing in tax oriented schemes. I am aware of some investors, who have desisted from making investments after the budget in such tax oriented schemes for fear of EET. Is such apprehension justified?

The Finance Minister is very keen to adopt what he has characterised as international practice. What is described as EET is a system of taxation, where the specified investment is tax-free and so is the income therefrom with the entire amount taxed on realisation of both investment and the income on the principle, Exempt (E), Exempt (E) and Tax (T). The two Es represent investment and income. Such a system is not new in our tax laws and was in vogue even under Sections 80CCA and 80CCB in respect of National Savings Scheme, 1987 and the equity-linked saving scheme (both discontinued in 1992). This is now in vogue in respect of contribution to specified pension funds under Sec. 80CCC and is made applicable to all new entrants to Government service under Sec. 80CCD.

Where any concession is granted subject to EET principle, such a condition must be made clear as had been done in the past. None of the present sections except Sec. 80CCC and 80CCD impose such a condition. Where an amount was taken as part of the taxable income, but either a deduction or rebate is allowed, it cannot be said that it has not been taxed, so that EET principle should not be applicable in such cases of tax rebated or tax deductible investment in the absence of any such condition at the time of subscribing to them. Income from such tax-oriented savings scheme has always been taxed, so that EET Scheme should not be applicable even for this reason. Income from Relief Bonds is tax-free, but investment was not entitled to exemption or any other concession. Hence such investments cannot come under EET Scheme

The Finance Minister's budget speech is understood in some quarters as indicating an intention to levy tax on maturity of such investments made in the past. This is what has scared some investors. Any such attempt to tax, say the withdrawal from provident fund or encashment of National Savings Certificates made in the past will not be legal and that does not appear to be the intention of the Finance Minister. In fact, this should have been clarified by the Government.

What has happened is that the Government has appointed a Committee as to the implementation of EET, so that we may get new schemes to replace Sec. 80C in future requiring payment of tax on maturity of savings, where tax is spared on investment and the income therefrom. Past investments cannot possibly be affected. If it is proposed to be affected, it will undermine the credibility of the Government apart from its untenability in law and the principle of promissory estoppel or doctrine of legitimate expectations.

S. RAJARATNAM

Printer friendly page  
Send this article to Friends by E-Mail

Business

News: Front Page | National | Tamil Nadu | Andhra Pradesh | Karnataka | Kerala | New Delhi | Other States | International | Opinion | Business | Sport | Miscellaneous | Engagements |
Advts: Classifieds | Employment | Updates: Breaking News |

Stories in this Section

India poised for a new telecom innovation
Betting on a corporate model for BSE
Fears over new grouping of small and medium units
On-line radio stations
EET: Will it be retrospective?
The Suzuki Swift

Copyright © 2005, The Hindu. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu